The end of 2023 brought a sharp increase in home prices. In fact, last year, home price gains even eclipsed wage gains. Home price increases in 2023 outpaced the last 35 years of annual average home price gains. As the chart below shows, the S&P Shiller 20-City Composite Home Price Index witnessed a year-on-year price increase of 6.1%.
The most rapid price growth occurred in major metropolitan areas, floating within a range of 8.3% to 8.8% in San Diego, Detroit, and Los Angeles. 2023’s increase in the cost of homes is largely attributable to increasing mortgage rates, which effectively shrunk the existing home market and placed an upward pressure on prices. Indeed, last year, home inventory was sparse. Subsequently, the fate of home prices in the coming months will be determined by supply. For instance, in January of this year, an increase in home sales brought prices down by nearly 3%, compared to the same time last year. Despite recent trends, however, it is undeniable that prices are still elevated. And, unsurprisingly, so are mortgages. Ultimately, as is thematic with the past year, all roads lead to the rates environment.
Source: Shaina Mishkin, Barron’s; St. Louis Fed; Macrotrends
Reade Ben is a policy analyst at the Manhattan Institute.
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